Opinion No. 72 / 26F

State of California Department of Corporations

Brian R. Van Camp, Commissioner 
In reply refer to: File No. _____

This letter is not an Interpretive Opinion for the reasons stated below.

Mr. C. Chester Brisco
Attorney at Law
Courthouse Professional Building
615 Civic Center Drive West – Suite 225
Santa Ana, CA 92702

Dear Mr. Brisco:

The request for an interpretive opinion contained in your letter dated June 27, 1972, has been considered by the Commissioner. Your letter raises the question whether the proposed deviation in the franchise agreement of Century 21 Real Estate Corporation (“Century”), under the circumstances described by you, is subject to the requirements of Section 31123 of the Franchise Investment Law. This question is answered in the affirmative.

We understand that Century is engaged in the business of selling real estate brokerage franchises which it has registered with the Commissioner of Corporations. It now proposes to enter into a franchise agreement with a real estate broker in the Newport Beach area. This prospective franchisee engages in substantial rental activities during the summer months because of the nature of the resort community in which he is located. Allegedly these rental services produce little profit and are rendered for the primary purpose of obtaining leads for real estate sales.

We understand that paragraph 7 of the franchise agreement which Century has registered with the Commissioner of Corporations, provides for payment by the franchisee of a service fee equal to 6% “of all gross income derived from all transactions to which a real estate license is required. In view of the nature of the business of this particular real estate broker, Century proposes to modify paragraph 7 of the agreement with him, so as to waive the service fee on rental income.

Section 31123 of the Franchise Investment Law requires a franchisor to promptly notify the Commissioner in writing by application to amend its registration, of any material change in the information contained in the application as originally submitted, amended or renewed. In our opinion, the proposed deviation in Century’s franchise agreement with the prospective Newport Beach franchisee is a material change and is subject to the, aforementioned requirement of Section 31123.

As you have noted in your letter, Section 31001 of the Law states that it is the legislative intent of the Law to provide each prospective franchisee with the information necessary to make an intelligent decision regarding franchises being offered. In our opinion, this intent calls for inclusion in the information on file and available in the Office of the Commissioner, of the significant deviation concerning the franchise fee., to which Century will consent in the case of the Newport Beach franchisee.

Inasmuch as interpretive opinions are issued for the principal purpose of providing a procedure by which members of the public can protect themselves against liability for acts done or omitted in good faith in reliance upon the administrative determination made in the opinion, and since there can be no such reliance where the Commissioner asserts jurisdiction with respect to a particular situation or determines that a legal requirement is applicable, advice to that effect, as contained in this letter, does not constitute an interpretive opinion.

Dated: San Francisco, California
August 9, 1972

By order of 
BRIAN R. VAN CAMP
Commissioner of Corporations

By __________________ 
HANS A. MATTES
Assistant Commissioner
Office of Policy